Manju Arjandas Uttamchandani and Another (Respondents (Plaintiffs) v Central Bank of India (Appellants
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LLOYD,SIR ROGER ORMROD |
| Judgment Date | 26 January 1989 |
| Judgment citation (vLex) | [1989] EWCA Civ J0126-6 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 89/0064 |
| Date | 26 January 1989 |
[1989] EWCA Civ J0126-6
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr. Justice Hobhouse)
Royal Courts of Justice
Lord Justice Lloyd
and
Sir Roger Ormrod
89/0064
MR. MARK HAPGOOD (instructed by Messrs Lovell White Durrant) appeared on behalf of the Respondents/Plaintiffs.
MR. A. DIAMOND, Q.C. and MR. CHARLES MACDONALD (instructed by Messrs Loxleys) appeared on behalf of the Appellants/ Defendants.
This case relates to a deposit account opened in the joint names of the plaintiffs, Mrs. Manju Uttam and her elder son Mr. Lal Uttam at the defendant bank in London. According to the plaintiffs' case the account was opened in late 1981 (actually on 25th March 1982) out of funds representing trade debts owed to her late husband, who had died in 1979. The debts were said to have been collected by Mrs. Uttam's brother, Mr. G.R. Vaswani, and a friend or colleague of his, Mr. B.R. Mahbubani.
About the time the account was opened Mrs. Uttam departed for the United States where she is now a permanent resident, leaving her brother to operate the account under a mandate in the bank's usual form.
In 1984 she agreed to lend to Mr. Mahbubani about $1,900,000, a loan which she now regrets. It has never been repaid.
On 1st February 1985 the defendants wrote to Mr. Vaswani indicating that it was their intention to transfer funds from the plaintiffs' deposit account in order to extinguish an overdraft on Mr. Mahbubani's account. The justification for this, at first sight, high-handed conduct was that both accounts were said to be nominee accounts and the beneficial owner in each case was said to be Mr. Vaswani. In those circumstances the defendants claimed to be entitled to exercise the banker's general right of set-off. The plaintiffs indignantly denied that they were nominees. Notwithstanding their denial, the defendants debited $1,662,044 against the plaintiffs' account on 20th May 1985, leaving a credit balance of a mere $36,859.
Three years later, on 26th May 1988, the plaintiffs issued a writ claiming a declaration that the debit had been wrongfully made, and an account of the sum due to the plaintiffs on their account. On 20th June 1988 they issued a summons for judgment under Order 14.,
The summons came on for hearing before Hobhouse J. in July 1988. The defendants relied on two main arguments. I have already sufficiently indicated the nature of the first. But there was a second argument put forward at the last moment. It was that Mr. Vaswani had specifically charged the plaintiffs' deposit account as security for the overdraft on Mr. Mahbubani's account. Hobhouse J. rejected both arguments, and gave judgment for the plaintiffs. There is now an appeal to this court.
Mr. Diamond, who appears for the defendants, has abandoned the second of the two arguments advanced before the judge, but he submits that the judge was nevertheless wrong to give judgment under Order 14. He ought to have given leave to defend on the strength of the first argument.
Now the banker's right of set-off between accounts is a well established part of our law of banking. But so far as I am aware, set-off has never been allowed, save where the accounts are of the same customer, held in the same name and in the same right. Even then, the banker's right of set-off may be excluded by agreement express or implied. What is unusual about the present case is that the bank is seeking to set-off accounts held in different names, on the ground that in each case the accounts are so-called "nominee" accounts, and that in each case the customer is in reality Mr. Vaswani.
Mr. Diamond candidly acknowledged that he could find no case where set-off had been allowed in such circumstances. Nor is there any hint of such a case in Paget on Banking, or any other leading textbook on the law of banking. This is not altogether surprising. for Mr. Diamond does not rely on the banker's ordinary right of set-off at common law, as envisaged by the defendants in their letter of 1st February 1985. He relies on set-off in equity.
The starting point of the argument was Cochrane v. Green 9 CB (NS) 448. In that case the plaintiff had a money claim against the defendant. The defendant sought to set off an amount due from the plaintiff on two promissory notes. The defendant was the lawful owner of the notes. But instead of enforcing the notes himself, he handed them to a third party as trustee and agent to enforce on his behalf. The trustee recovered judgment against the plaintiff on the notes, but the judgment remained unsatisfied. It was argued on behalf of the plaintiff that the defendant could not rely on set-off in equity because there was no connection between the plaintiff's money claim against the defendant and the defendant's cross-claim on the promissory notes. The mere existence of cross-claims, it was said, was not enough.
Pausing there, one can compare the plaintiff's argument in Cochrane v. Green with the familiar doctrine of equitable set-off recognized by the Court of Appeal in Hanak v. Green [1958] 2 QBD and applied every day in the courts.
The court rejected the plaintiff's argument. Williams J. said at page 468:
"I apprehend the established rule of equity with reference to set-off is to look upon the beneficial owner as the real owner, and by injunction to compel other courts to regard his rights, and to disregard the legal title of the trustee. That being so, it is the same as if the debt due from the plaintiff to the trustee had been due to the defendant, the cestui que trust, in which case it cannot be doubted that it would constitute a good legal set-off".
The set-off allowed in Cochrane v. Green may perhaps be regarded as coming under a different head of equitable set-off to what I may call the ordinary Hanak v. Green type of set-off; but it has the same juridical basis. As was said in a later case, the promissory notes in Cochrane v. Green were "really and truly" the property of the defendant, despite being enforced in the name of the third party. Accordingly the defendant was held to be entitled to rely on set-off in equity, despite the inter-position of the third party as trustee.
Mr. Diamond argued that by the same token the defendants can look behind the names in which the bank accounts are held and treat Mr. Vaswani as the customer in each case. Just as the Court of Equity in Cochrane v. Green could look on the defendant as the beneficial owner of the notes and treat the sums due on the notes as being due to him, so we ought also, as a Court of Equity, to treat Mr. Vaswani as the beneficial owner of the credit balance on the plaintiffs' deposit account, despite the fact that that account is held in the plaintiffs' name.
I see great difficulty in applying the principle of Cochrane v. Green to the present case. In the first place it was common ground in Cochrane v. Green that the third party held the notes as trustee for the defendant. There is no such common ground in the present case....
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